How to "Force Growth" After Series B
So, this Series B+ SaaS company has great success to date with their first product and markets. They have “product / market fit”, and some unit economics. Now they are searching for "new ways to grow" and none of the options feel as predictable as the core. The CEO says to me, “It’s starting to feel like we have to ‘force growth’”
That’s exactly right. But forcing growth is not as unnatural – or uncommon – as it sounds. In fact, in my experience, every B/C-series SaaS company I know has gone through (what feels like) forced growth. Though, in the end, and from the outside, it will look like just successful growth.
You don’t see how fast the duck pedals its feet under water.
At Bazaarvoice (I was founding CMO for first 5 years) it felt like sales momentum never stopped. What was happening under the water? Around years 3 and 4 we were moving into our 5th office, hiring 40 people a quarter (mostly sales) with 8 recruiters, we invented 7 new products, expanded to 13 regions, sold into at least three new verticals (CPG, luxury, and travel), had a press hit at least every day, and hosted a big client summits in the US and UK every year. Our refrain (and theme song) was "Don't Stop Believing" and we referred to our mental state as "hair on fire".
At Mass Relevance (I was CEO and co-founder) we were feeling some new growth pressures going into year 3. We had received Series B funding led by Austin Ventures. We were making progress outside of TV/sports with brands such as Victoria’s Secret and Patagonia. We invented new social content display products for web sites and we were building the next product (analytics). We planned to expand revenue and retention across our 300 clients and grow more with brands. At the same time we had started selling in Europe. As we passed our third anniversary, we received a term sheet for Series C or the option of merging with Spredfast. We chose the merging because this was the most predictable way to ‘force growth’ and increase our chances of success.
The framework to prioritize paths to grow lie in the familiar Ansoff Matrix. Leaders have to choose among new customers or existing customers, and/or new products or existing products; or any combination of thereof.
Forced growth happens when a company has sold into an existing product/existing market, and realizes that quadrant alone won’t quench their ambitions. So, they look to expand through the other quadrants via pricing, geography, product, verticals, acquisition, etc.
Every round of venture funding increases growth pressure. Though this is self-inflicted by a CEO making the forecast to get the valuation. Floating on optimism from past success, and excitement from money in the bank, the organization sails into unpredictable winds. Things start to feel chaotic. The activity created from pressure and spending feels like your ‘hair is on fire’ or the ‘wheels can come off. When forced growth goes well, there is consolation of sales momentum in a duet with operational turmoil. When it is not working, there are increasing acts of desperation and failed efforts.
Operating in forced growth is like racing a car to its edge. In a race car you are held to the road by four very small contact patches -- the tire rubber that touches the surface. When you accelerate or brake in a straight line it’s pretty predictable (Series A growth phase… one product, one market). Once you start to turn and have any braking or acceleration there are now TWO forces which puts too much pressure on one tire. Either the front tires lose traction and you slide into a wall or back tire patches get loose and you spin out. In a straight line you can slam on the brakes or the floor the gas pedal and you’ll be fine. But TWO forces on less contact patches increases the chances of a crash.
You can turn at high speed, but the car -- and the company, in this metaphor -- need to be balanced.
During forced growth, the company continues their existing product / market fit. In addition they have to make a turn (or multiple turns) to grow in new directions. They’re past the need to pivot – which is like turning the car around or getting in a new car. However, they will now have to manage high speed turns to expand products and/or markets to meet expectations.
Can this feel unnatural and stretch an organization? Absolutely. Hence the term “forced”! And let’s be clear. The majority of VC-backed companies flatten out below expectations. All leaders will attempt to force growth, but only some will be able to make the right turns at the right time with the right touch. And while luck and timing are big factors, there also has to be readiness.
Alas, not every organization (i.e. leadership) can successfully force growth. Not all companies have scalable leaders upon Series B, and changes need to be made, which can slow things down. Or culture is not right. I’ve seen a mostly engineering or analytical culture fail at this stage. Decisions take too long, and it’s hard to think big or orthogonal.
On the other hand, failure comes to the overly optimistic. Some headstrong leaders think TOO orthogonal and force activity so hard they create chaos. Do you know the story of Fyre Media. It was a booking app software business. But they became known for the fraudulent Bahamas Fyre festival. The “unicorn at all costs” mentality with a lack of discipline or purpose can disassociate an entire company from reality.
Like most things, forced growth requires balance and finesse. It requires an interoperability between pragmatism, optimism and fanaticism; sometimes in the same meeting! It will feel fluid to operate between analytical optimization and ‘Take this hill at all costs! Go, go, go!”.
It’s as simple and hard as that.
What does FAILING forced growth look like? Or feel like?
The goals are not clear to everyone, or anyone!
Every function is trying to grow in their own way, not working together focused
Tactics and non-meaningful programs are touted as big wins
It feels like no idea is a bad idea and there’s no prioritization
Product and services are doing bespoke gymnastics repeatedly to make deals work
There are no controls over sales deals. Prices are getting cut indiscriminately to win
There is a ‘throw more bodies at it’ mentality
There is no cultural acceptance of an effort vs. impact or tradeoff discussions
There is no exploration of problems or challenges, only ideas that “will happen”.
Budgeting is done in silos with no guardrails and constraints. Budgets exceed the forecast
Spending increases but revenue forecast does not.
Shortly after the company raised money, they are forced to do so soon again
What does SUCCESSFUL forced growth look like?
There is an across-the-team clarity of goals (marked higher than the board plan)
There is an across-the-team understanding the most important problems and obstacles to winning new business in new verticals or regions
There is trust and communication between executive leaders, which sets the examples for their teams.
The team sells the roadmap and vision to clients, as high up as possible
All executives are involved in the selling process.
There is open-mindedness to orthogonal ‘out of the box’ solutions to problems and challenges
There’s a “what if we added a 0 to that” mentality to test if teams are thinking big enough.
Executives discuss meritocracy rewards and ‘who needs a loving kick in the butt’ to improve performance
You feel the test-and-learn culture, rewarding programs as hypotheses that deserve investment if they win. And also celebrate failures because stopping something saves valuable resources.
There’s a focus and rigor of hiring the most passionate people who take initiative
There are clear run-the-business vs change-the-business programs and owners. Successful change the business programs eventually get owned by run-the-business operators.
Across the board, there is excellent communication. Slack is vibrant. Exec meetings, team meetings, 1x1s that are succinct and useful.
New markets are tested with ‘scout’ efforts. This could be one salesperson in a new vertical or region.
There’s a cross-functional openness and clarity to bending (not breaking) sales, product and customer success efforts to win big deals or open big rivers of revenue.
Different kind of salespeople are hired for different kind of selling. “Hunters” are the ones who tackle the ambiguity to open new markets
There’s a perspective of adding out-of-budget resources where there was commitment and confidence to increase the plan to pay for that.
How can you navigate forced growth?
Like I mentioned, the simplest framework is the Ansoff matrix. Prioritize which products to which markets. Build an MVP product and a execute a lean go to market strategy quickly. Learn, adapt, and invest accordingly.
Choosing where to go starts with an analysis of market size and wallet size and ‘how’ those markets buy. Lowest effort, biggest impact wins. But also activities that are closer to your existing core competency should get extra points.
Looking at international markets is a common path. However, the P&Ls for companies in the US are larger than other markets. Therefore deal sizes are typically smaller and support costs will be higher. So, taking on new regions is best timed when you have global clients who are want a global deal. You get paid to learn.
Sometimes you can make a small change to an existing product, change positioning, and sell a new product to existing and new customers. At Bazaarvoice, our core product + market was Ratings and Reviews for typical online retailers. After several unsuccessful pitches of ratings & reviews to the Luxury manufacturer and retail sellers I asked my product team to remove the rating. What was left was a ‘title’ and an open text field for consumers to write their “Stories”, as we called the product. It became a new offering that took 5 days work and some product marketing. It was a new form of user generated content. It sold for 70% of the price of Ratings and Reviews product, and was our key for getting into the Luxury market who didn’t want customers to rate their products.
What are some paths to force growth?
Changing pricing model – for example from flat rate SaaS to a platform fee + per user
Selling product add ons – think Salesforce ‘tabs’ increasing the $ per seat/month
Acquiring a company or product – Salesforce buys Buddy Media for $400M to sell social software.
Adding services to the mix – it shouldn’t be the majority of SaaS revenue but it will get the same multiple if it’s part of servicing the product.
Expand international markets – as mentioned earlier, ideally start with a client who takes you there.
Open new verticals – choose ones ideally larger than current and have least amount of product or product marketing changes
New product to a new buyer in existing market – This is like selling to the same organization but to a new buyer / wallet. Ideally the new product is only a turn from existing product and doesn’t require double the dev or support effort.
Expand by size of client – if you sell to large enterprise can you sell to SMB, or vice versa?
I leave you not with a pithy conclusion but some book recommendations that could be helpful when the future looks like it needs to be bigger than the past!